TCS’s Q1 profit up 23.5% y-o-y

India's largest software-services company Tata Consultancy Services (TCS) on Tuesday kick-started the IT earnings season for the first quarter of the current fiscal on a positive note. TCS posted a 23.5% year-on-year rise in profit during the April-June period backed by robust business in North America, the largest IT market in the world.

The Mumbai-headquartered company recorded net profit of Rs 7,340 crore during the June quarter compared to Rs 5,945 crore during the same period last year. TCS’s business growth (7% year-on-year) in North America was the highest in 12 quarters led by strong outsourcing demand in the banking, financial services and insurance (BFSI) space, the largest vertical for the IT major.

Revenue during the quarter stood at Rs 34,261 crore, up 9.3% year-on-year (y-o-y) and 4.1% quarter-on-quarter in constant currency terms. (IT companies use the constant currency method to eliminate the effects of exchange rate fluctuations while calculating financial results.)

Brokerage firm Emkay Global in its note pointed out that results well ahead of estimate driven by recovery in BFSI vertical. “We believe the strong quarterly performance would support the current valuations of the company and further upside would largely be a function of outlook on BFSI clients that may lead to earnings upgrade,” the note added.

In dollar terms, the company’s revenue crossed the $5 billion mark (at $5.051 billion) on a quarterly basis during the April-June stretch, while profit was recorded at $1.1 billion up 17.2% y-o-y.

“We are starting the new fiscal year on a strong note, with the growth engine firing on all cylinders. Our banking vertical recovered very nicely this quarter, while other industry verticals maintained their momentum. With a good set of wins during the quarter, a robust deal pipeline and accelerating digital demand, we are positioned well for the future,” said Rajesh Gopinathan, CEO and managing director, TCS.

The April-June period is a seasonally strong quarter for the software-services industry as client budget for IT spends starts rolling out.

TCS, which celebrated its 50th anniversary this year, announced an interim dividend of Rs 4 a share. The proposed record date for dividend is July 18, while the payment date is July 25.

During the quarter under review, TCS’s revenue from digital business grew by 44.8% y-o-y.

“We are seeing strong demand in areas like cloud transformation, cybersecurity and data privacy, and automation,” said N. Ganapathy Subramaniam, chief operating officer and executive director, TCS. During the April-June quarter, digital business contributed 25% to TCS’s overall revenue.

The total employee strength at the end of the first quarter stood at 4,00,875 people on a consolidated basis. The attrition rate on a last twelve-month basis (LTM) was at 10.9% during the June quarter.

Shares of TCS closed at Rs 1,877 a piece, marginally down 0.56% on the Bombay Stock Exchange before the earnings announcement on Tuesday, while the Sensex ended the day up 0.85% at 36,239.62.